Slumping Bon-Ton Trims Inventory, Cuts Debt

In a period when Bon-Ton is among the department store retailers struggling to maintain sales volume and failing to show a profit, the fiscal second quarter offered some growth opportunities — even if only in a limited way — for the home category.

Both soft and hard home goods were among the few success stories on the admittedly "very small" e-commerce site, said Anthony Buccina, vice chairman and president of merchandising, private brands, planning and allocation, and internet marketing, during the earnings call.

"Currently, our three strongest categories continue to be soft home, hard home and shoes," he said of the recently accelerated e-commerce initiative. Buccina said expansion this fall season is expected from "a combination of direct vendor fulfillment and expanded online assortment offerings."

Home was also a department that sustained a bigger-than-average increase this quarter in penetration by Bon-Ton private brands, which now comprise 19% of total sales at the 280-store company.

In the quarter ended Aug. 2, Bon-Ton recorded a net loss of $33.8 million, or $2.01 per diluted share – including a $17.8 million non-cash pre-tax goodwill impairment charge, or 72 cents per diluted share — compared with a net loss of $15.0 million, or 91 cents per diluted share in the year-ago period.

Quarterly sales of $673.4 million were down 5% from $708.6 million last year; comps fell 5.7%. Year-to-date comps are down 5.1%, as six-month total sales fell 5.0% to $1.37 billion.

Bon-Ton executives responded during the call to an analyst comment on reports of caution by factoring firms. "There have been no changes in terms and I can tell you that we have good relationships out there," said Keith Plowman, evp, cfo and principal accounting officer. "The biggest difficulty we have is dealing with the rumor mill."

"There's no question that in this type of environment, you have conversations with vendors — they are our partners — and you have conversations with factors. We keep the communication out there," Plowman said.

He then outlined several positive financial and operational measures. "Our excess [borrowing] capacity is $238 million — running above last year. And as you go through end of this year, we expect to continue to increase our excess capacity, as we have historically," he said. "Our comp inventory levels are [9%] below the prior year, and we manage our inventories very tightly. Our inventory is more current at the end of this second quarter than it was at the end of 2007."

"Our expenses are trending below and will continue to be below the prior year level," Plowman continued, "and essentially our debt level was more than $80 million below the prior year."

Another analyst asked for the proportion of Bon-Ton's business done via factors. While Plowman did not give a precise figure, he offered an "estimated guess" of 30% to 40%.